Atlantic Cities

Why It's So Hard to Figure Out the Sharing Economy's Winners and Losers

Why It's So Hard to Figure Out the Sharing Economy's Winners and Losers
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One of the big questions surrounding the "sharing economy" is what it will mean for the regular economy, or, rather, those businesses in it that sell consumers stuff and services the old-school way. How will ride-sharing and e-hailing disrupt the taxi industry (or even the car-sales market)? We've already seen that traditional car-rental companies have been forced to adjust. Likewise, how will short-term apartment rentals impact hotels, or food-swaps impact restaurants, or tool-sharing sites impact Home Depot?

Part of the answer comes down to whether these platforms are creating new kinds of demand, or whether they're meeting demand for things we were already buying. Maybe you don't need to go to the hardware store now that you can rent a jackhammer from your neighbor. Or maybe you were never going to do that jackhammering project unless you could just borrow the thing from someone else. If that's the case, the hardware store didn't really lose your business. (Third scenario: now that you've borrowed said jackhammer, you need to buy some bricks.)

So far, sharing economy companies have tentatively suggested that they often complement existing businesses. A new study from researchers at Boston University, though, challenges this idea. Georgios Zervas, Davide Proserpio, and John W. Byers specifically looked at the impact of Airbnb rentals on the hotel industry in Texas.

Their main conclusion: a 1 percent increase in Airbnb listings in Texas results in a 0.05 percent drop in quarterly hotel revenues, most of that loss concentrated among budget hotels. A fraction of one percent sounds pretty small, but the authors told The New York Times this week that they believe hotels should be legitimately worried, given the rapid growth of Airbnb.

"Our work," the authors write, "is among the first to provide empirical evidence that the sharing economy is significantly changing consumption patterns, as opposed to generating purely incremental economic activity, as argued in prior work."

There are two ways to look at this finding. For one, Texas isn't a very big market for Airbnb, and so the results may not generalize elsewhere, or beyond the accommodation space (the authors are not claiming that it does). Second: So what? Is it necessarily a bad thing if a new business model cuts into the revenue of an older one? Especially if, well, the new business model is a better one (as Airbnb has been very savvy in suggesting in Sochi).

That's a loaded question in light of the fact that these two models are regulated very differently (in that one is not regulated much at all). But set that issue aside for a moment.

In reality, we should evaluate Airbnb and companies like it – as best as we can – by their net impact. Zervas and his co-authors acknowledge this. Airbnb says it creates jobs and other economic ripple effects. Maybe that only tells one side of the story. Hotels say Airbnb cuts into their revenue and costs jobs. That's one side of the story, too. What happens when you merge them into the same picture?

Let's say I have $200 to spend this weekend on a trip to New York. I can spend $175 of that on a hotel, giving that hotel some revenue (maybe it's a national chain), and giving the people who work there another room to clean and care for. I'll spend the $25 I have leftover on some meals at a couple different delis and diners.

Or, I take my $200 and spend $75 of it renting a room from someone on Airbnb. That person puts that money toward their rent or the laptop they've been saving for, or a dinner at a neighborhood restaurant. I have $125 leftover, which I spend on a discount show, two decent meals, and a keychain.

With the Airbnb option, these are the winners: me, the Airbnb host, the TKTS window, the additional restaurants I can now afford and the guy who sold me the keychain. The losers: the hotel, and the people who work there who depend on my business.

The real tradeoff here isn't simply between Airbnb and the hotel, between that 1 percent growth in people listing their spare bedrooms and the 0.05 percent loss in hotel revenue. It's between everyone invested in scenario one vs. everyone invested in scenario two. I'm not saying that scenario two is necessarily or always the better option for society at large. Maybe instead of spending the same pot of money in both scenarios, another Airbnb boarder simply pockets the difference and spends less money in New York overall. Or maybe that Airbnb host is renting out five apartments, taking otherwise affordable housing off the market to cater to tourists. All of these implications matter in any holistic assessment of the impact of these new consumption models.

It's also a fair question for cities to wonder how their tax revenue will differ in my two scenarios. And this gets back to the question of regulation. If we're really going to compare these two models, and if researchers are increasingly going to take up the challenge of sussing out economic impact, it would certainly help if one of them didn't exist in a legal netherworld.

Top image: stefanolunardi/Shutterstock.com.

Emily Badger is a former staff writer at The Atlantic Cities based in Washington, D.C. She now writes for The Washington Post. All posts »

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